Sunday, 17 July 2011

Will China's biggest automaker SAIC's entry shift gears for GM and other major auto players in India?

For long, General Motors (GM) - the world's second-largest carmaker - struggled in India. After over 15 years of India operations, its sales remained lacklustre, crossing the 1-lakh unit mark just last year. 

Suddenly, its Indian drive has got a new zing. "We will capture 10% market share [up from the present 4%] by 2012-13," declares Karl Slym, managing director, GM India. On the back of RS.2,000-crore investment, a hike in capacity to 4,00,000 from 2,25,000 units and six launches, GM India plans to treble its India sales and become a serious contender in the Indian car market. 

GM's newfound optimism has a China reason. In 2009, when a bankrupt GM was gasping for funds, it brought in its Chinese partner - SAIC Motor Corp - as the 50% joint venture (JV) partner in its Indian subsidiary. The $34-billion SAIC has both aggression and ambition. Coupled with these is its strong pedigree as China's largest automobile conglomerate - it sold 3.6 million cars in 2010. 

Expectedly, in the last one year, it has pushed its way into GM India, getting three out of six board seats, creating a joint managing director position to install its representative at the top, besides a few other senior officials. SAIC's entry could change the game for GM in India. Its low-cost frugally engineered vehicles are a big success in China. 

In the first six months of this year, its Wuling minivan, whose variant will later be launched in India, sold 648,000 units in China. It hopes to replicate that success here. 

But SAIC's entry has broader implications for China Inc's global ambitions. "Chinese auto companies have been looking at overseas market for some time. India is their first big international foray," says Shanghai-based Marvin Zhu, analyst, JD Power Asia. 
In fact, GM-SAIC may be China Inc's template to explore new emerging markets together. The duo have already registered a 50:50 Hong Kong-based JV - GM SAIC Investment - that will facilitate their expansion. Other Chinese companies, including Geely and Chery in the auto sector, must be watching SAIC's moves from the sidelines. 

So far, India-China's over $60-billion bilateral trade has been dominated by Chinese imports. "The Chinese are now willing to recognise the trade imbalance and its non-sustainability. This could help kickstart the [Chinese] investment era in India," says Rajiv Kumar, secretary general, Federation of Indian Chambers of Commerce and Industry (Ficci). 

Meanwhile, SAIC's investment in GM India is already beginning to take effect. 

The Dragon Plan 

Early next year, GM India will launch two light commercial vehicles (LCVs) from the SAIC stable. Under the Chevrolet umbrella, one will take on Maruti's successful Eeco (RS.2.8-3.8 lakh) and Tata Venture (RS.4-5 lakh), a fast-growing segment. Around the same time, it will also launch a one-tonne pickup truck to compete with Tata Ace and Mahindra Maxximo. 

Their model pick is interesting. India today is an intensely competitive market teeming with almost all major car companies in the world. The GM-SAIC JV is looking at niches where gaps exist. For example, Maruti's Eeco, launched in 2008, is logging 30%-plus growth when the car market is sluggish (June sales growth was at 1.6%). 

The category is expected to touch 275,000 units in 2012-13. Though categorised as an LCV, its multi-purpose usage - from taxi, school vans and goods carrier for entrepreneurs to a modest car for a large family - makes it an extremely versatile product. GM with its new product line up hopes to have a good play in this segment. Accordingly, GM's Halol plant is being converted into a global hub for LCV manufacturing. 

But SAIC's portfolio is large in China and GM will have plenty of choice to pick from. 

The King of Chinese Roads 

At 14 million, China is the world's largest car market. And SAIC is its largest player. Government-owned and listed, it is a state-owned enterprise (SOE), akin to an Indian public sector undertaking. At 3.6 million, it sold more cars last year than all the cars sold in India (2 million-plus) and is the world's eighth largest auto conglomerate. 

Besides size, it is an interesting group. Over the past two decades, it has stitched multiple JVs with MNCs, a condition mandated by the Chinese government. Two of its biggest JVs are in partnership with GM and Volkswagen , both of which sold 1 million-plus cars in 2010. Typically in these JVs, while the MNC brings in the expertise on research and development (R&D) and brand management, the local partner focuses on local functions like HR and sales. 


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